China Manufacturing Index Little Changed in March

Chinese manufacturing gauges pointed to weakness in the world’s second-biggest economy that could prompt the Communist Party leadership to roll out additional support measures.

A Purchasing Managers’ Index fell to 48 in March, the lowest reading since July, from 48.5 in February, HSBC Holdings Plc and Markit Economics said today. A separate PMI from the government, with a larger sample size, was at 50.3 from 50.2 the previous month.

The reports underscore what Premier Li Keqiang last week called “difficulties and risks” as he tries to control surging debt, default dangers and pollution that threatens to stoke public discontent. Li said the nation has policies in reserve to support economic growth after the cabinet said it would accelerate construction spending.

“We expect Beijing to fine-tune policy sooner rather than later to stabilize growth,” said Qu Hongbin, chief China economist at HSBC in Hong Kong. He added that the pace of first-quarter growth is likely to have fallen below the nation’s full-year target of 7.5 percent.

The MSCI Asia Pacific Index of stocks rose 0.3 percent as of 4:55 p.m. in Tokyo. In Japan, an increase in a sales tax starting today is projected to cut gross domestic product this quarter, indicating that a gain in sentiment among large manufacturers may be short-lived. The Tankan index was at 17 in March, the highest level since 2007, a report showed.

Indian manufacturing also weakened. An HSBC-Markit PMI for that nation fell in March to 51.3 from February’s 52.5.

‘Reasonable Range’

Li said last week he was confident China will keep economic growth in a “reasonable range.” The nation will gradually introduce “powerful” measures, including speeding up construction of key investment projects and building railways, roads and irrigation infrastructure, he said.

Analysts are split over whether the central bank will cut banks’ reserve requirements for the first time since May 2012. Hu Yifan, chief economist at Haitong International Securities Group Ltd. in Hong Kong, said today that the government will do so to aid the broader economy, while JPMorgan Chase & Co.’s Zhu Haibin said he doesn’t expect such a move, which should depend on capital flows.

Eleven of 21 economists surveyed by Bloomberg in March saw a reduction in the reserve ratio in 2014, compared with six out of 18 analysts in February.

“Fiscal and monetary policy are not too tight right now -- the key is to boost the efficiency of fiscal and monetary policy,” said Zhu, who’s based in Hong Kong and formerly worked at the Bank for International Settlements. “Currently credit growth is not slow compared with GDP growth, but the efficiency of credit is declining.”

While today’s official PMI was the lowest for March in figures dating to 2005, a sub-index of new export orders rose to 50.1 from 48.2, indicating the first expansion since November. Today’s report suggests growth is poised to stabilize, Zhang Liqun, a researcher with the State Council’s Development Research Center, said in a statement.

Power Output

Government officials will monitor power output, coal usage and crude-oil processing, after the National Development and Reform Commission said March 26 that it saw signs of economic improvement last month in those data.

The median estimate of analysts for first-quarter growth dropped to 7.4 percent in March from 7.6 percent in February, according to Bloomberg News surveys. For the full year, the median forecast slid to 7.4 percent, which would be the weakest annual pace since 1990.

Deutsche Bank AG cut its projection to 7.8 percent from 8.6 percent, according to a March 28 report.

Debt dangers have been marked by events this year that include China’s first onshore bond default, the collapse of a real-estate developer and the bailout of a 3 billion-yuan ($483 million) China Credit Trust Co. product that lent money to a failed coal miner.

Credit Growth

“Li Keqiang last week basically confirmed the government is going to take some measures to support growth,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong. This “is also likely to affect the overall monetary stance,” said Kuijs, who added that a slowdown toward the end of 2013 continued in the first quarter.

The government “is likely going to be less forceful in reining in credit growth,” the economist said.

The preliminary HSBC-Markit number released March 24 was 48.1. Estimates for the official PMI ranged from 49.8 to 51.2. The government’s PMI is based on survey responses from purchasing executives at 3,000 companies, while the HSBC-Markit report comes from more than 420 enterprises.

— With assistance by Xiaoqing Pi

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